Startup GridNetworks promises 'DVD-quality' Internet video

By JOHN COOK, P-I REPORTER

Updated 9:00 pm, Tuesday, October 31, 2006

The Internet is transforming the way people watch television and movies. And that is leading to some interesting developments in the media industry, including Google's $1.65 billion acquisition of YouTube and Brightcove's introduction this week of a service that allows people to set up their own online television channels.

The revolution is certainly getting crowded, with All Things Web 2.0 listing no fewer than 69 companies in the online video arena.

Now you can add a 70th.

GridNetworks, a two-year-old Seattle startup led by Internet veterans Jeff Payne and Bo Wandell, today plans to unveil a new content delivery service that streams full-screen "DVD-quality" video on behalf of entertainment companies.

"A lot of people have wanted video over broadband to work like television, and it hasn't to this point," said Payne, a former RealNetworks employee who believes his 15-person startup has cracked the code.

Some movers and shakers from the technology industry are lending support to the startup, which competes against established content delivery companies such as Akamai Technologies and Limelight Networks. (Akamai boasts a market capitalization of $7.3 billion, while Limelight raised $130 million in July).

GridNetworks' board of advisers includes former Expedia and AtomFilms executive Matt Hulett, Isilon Systems co-founder Sujal Patel and others. It has raised about $500,000 to date -- a pittance compared to the competition.

But Payne says that GridNetworks can deliver high-quality video more securely and cheaply than its rivals, cutting the delivery cost of a full-length feature film in half. Payne estimates the delivery cost for a 1.2-gigabyte film at about 25 cents to 50 cents -- a price point that he says could change the rules of online video.

That, he said, could make it economical for studios to start making money on the millions of hours of old programming they have locked in the vault.

The reason it is cheaper is because GridNetworks -- like peer-to-peer networking services such as BitTorrent and Kazaa -- taps the power of individual computer users who download the company's software to share portions of movies over the network. For example, a movie viewer in Kansas who downloaded the software and watched "Goodfellas" would have six-second segments of the movie stored on his or her computer. Those segments can be reassembled with others in the network to provide the entire film to a person in Chicago who requests "Goodfellas."

"When somebody watches 'Goodfellas' the next night, that computer might be sharing some of those segments again," Payne said. "We can make very modest demands on a large group of computers and offset the cost to the video publisher. The benefit to the consumer is we think this is going to create a new market and it changes the economic proposition."

Payne doesn't like the comparisons to BitTorrent, which in the early days ran into troubles with major movie studios. And, in a way, it is different. Because the movies are streamed, rather than fully downloaded as they are by BitTorrent users, Payne said it provides "instant gratification" and is "inherently more secure."

He added that the company's cryptographic method is very similar to what the U.S. military uses to communicate with submarines.

Payne calls GridNetworks a "new hybrid package" that combines the best elements of peer-to-peer services with more traditional content delivery systems.

Kelly Smith, a co-founder of Curious Office Partners and an adviser to GridNetworks, said the startup faces competition from "dozens of players." Those include Verisign, which acquired digital media delivery company Kontiki earlier this year, and The Venice Project, a new digital media distribution system from the founders of Skype.

Smith says it is too early to say who will win the war, but he thinks it is clear that a system such as GridNetworks will have to catch on in order for online video to work.

"The real issue here is what happens when users start demanding a better video experience from the Web than what they get now, something truly more like your television set," he said. "Pushing and sharing content at the absolute edge of the network will be a typical method for consuming online (high-definition) content."

Even though there are high-profile competitors chasing the same opportunity, Payne believes his company has certain advantages.

In development for more than two years, GridNetworks has filed dozens of patent claims. None has been granted yet, though Wandell, vice president of sales and marketing, said the company is "well-protected from a patent standpoint."

Payne, who helped develop the content delivery network at RealNetworks, also is emboldened by his team.

"They have money," he said of the competition. "But we have years of practical streaming experience."

The next step for the company will be adding customers, the producers of video content who are looking at new ways to tap the Internet. Payne wants 250,000 users by the end of the year, a milestone he says does not look like a "hair-raising assumption at this point." The company is in discussions with a gaming site and other media companies.

At this time, the only company using the technology is Seattle online video startup ReelTime. ReelTime, which sold the networking technology to GridNetworks last year, is using the technology to deliver a couple of hundred videos to its customer base.

"Without Grid, I don't know where we would go to carry our traffic," said Michael Gersh, vice president of communications at ReelTime.